## Harnessing Renewables in Sub-Saharan Africa: Barriers, Reforms, and Economic Prospects

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### Context and need
- Approximately half of the sub-Saharan African population lacks electricity, and those connected pay almost double the global rate.
- The region’s population is projected to double by 2050, reinforcing rising electricity demand as manufacturing and services expand.
- To meet future energy demands while honoring the 2015 Paris Agreement, sub-Saharan Africa needs a sustainable energy transformation rather than reliance on coal, oil, and traditional biomass.

### Renewable potential, developmental benefits, and technical feasibility
- Rapid cost declines: solar energy cost declined by 89 percent between 2010 and 2022; onshore wind cost declined by 69 percent (IRENA 2023).
- Developmental benefits listed:
  - Reduced dependency on volatile global fossil fuel markets.
  - Minimized harmful air pollution.
  - Avoided risk of stranded fossil fuel assets.
  - Health improvements, better access to information and communication infrastructure, and increased productivity of micro-enterprises (Mugisha and others 2021).
  - Contributions to climate adaptation (e.g., irrigation and refrigeration in off-grid regions).
- Technical feasibility:
  - Transition to an electricity system consisting entirely of renewable energy is technically possible (Barasa and others 2018).
  - Hydropower can function as “virtual batteries”; desalination and industrial gas production can be timed to renewable surpluses.
  - A dense continental electricity network enabling trade is required.
  - Models indicate implementing a full renewable system would require 20 to 30 years.

### Current energy landscape and regional heterogeneity
- 2020 primary fuels: dominated by biomass, followed by oil; biomass mostly for cooking, oil for transport and heating.
- Electricity production shares (2000–2021, 2021 values):
  - Coal: 43 percent (mostly South Africa).
  - Hydropower: 30 percent.
  - Natural gas: 13 percent.
  - Nuclear: very small and approximately constant.
- Renewable growth markers:
  - Geothermal reached 1 TWh in 2005; solar 1 TWh in 2014; wind 1 TWh in 2016.
  - Between 2011 and 2021, solar and wind production was 78 times larger in 2021 than in 2011.
  - Of the increase in renewable energy between 2018 and 2021 in sub-Saharan Africa, 79 percent came from hydropower and 18 percent from solar energy.
- Regional specifics:
  - South Africa accounts for 48 percent of sub-Saharan Africa’s total electricity generation.
  - South Africa contributes 95 percent of coal-generated electricity across sub-Saharan Africa.
  - In DR Congo, Ethiopia, “Middle other,” and “Eastern other,” more than half of electricity generation comes from hydropower.
  - Kenya sources half of its electricity generation from geothermal.

### IPCC scenario results and IMF-ENV baseline projections
- IPCC scenario medians for electricity production:
  - 2020: about 2 EJ.
  - By 2050: median values of 8.5 EJ for 3°C, 12.5 EJ for 2.5°C, and 18.6 EJ for 1.5°C.
- 1.5°C category: median share of solar and wind reaches almost 75 percent of electricity mix by 2050; fossil fuels fall nearly to zero by 2040.
- IMF-ENV baseline (simulation start 2017; historical trends to 2022; projections to 2035) key projections relative to 2021:
  - Total power generation increases by a factor of 1.7 by 2035.
  - Solar and wind generation increase by a factor of 5.6.
  - Other non-fossil technologies increase by factor 2.2.
  - Fossil-fuel technologies grow by factor 1.3.
  - Share of all renewable energy sources rises from 31 percent in 2021 to 47 percent by 2035.
  - Total electricity generation increases from 520 TWh to approximately 880 TWh by 2035.
  - Hydropower in absolute terms reaches 300 TWh in 2035.
  - Nuclear share falls from 3 percent to 2 percent between 2021 and 2030 (sub-Saharan Africa baseline).

### Investment needs and illustrative financing strategies
- IEA (2022) estimate: $25 billion per year required to modernize Africa’s electricity sector.
- Upfront capital intensity: onshore wind and solar PV have high capital expenditure shares (global average capital expenses 60 percent to 65 percent in 2017 for solar PV and wind).
- Three illustrative financing strategies modeled:
  1. Domestic scenario: new investments fully funded by reallocating domestic resources (θ = 0).
  2. International scenario: new investments entirely financed from abroad (θ = 1).
  3. Mix scenario: 50 percent domestic financing and 50 percent international financing (θ = 0.5).
- Investment shock specification:
  - Annual new investments in solar and wind equal 0.5 percent of baseline GDP higher annually until 2030 (in addition to baseline accumulated capital stock of 0.5 percent of sub-Saharan Africa’s GDP).
  - 0.5 percent of GDP investment shock ≈ annual spending of about $12 billion in total in sub-Saharan Africa by 2030.
- Productivity assumptions:
  - Investments sufficient to modernize electricity sector (IEA estimate $25 billion/year) assumed to lead to a 5 percent improvement in productivity by 2035.
  - Long-term labor productivity improvements from eliminating power outages average 15 percent across four economies; simulations scale productivity shocks proportionally.

### Macroeconomic impacts under financing strategies (average annual GDP growth impacts, 2025–2030 vs baseline)
- Domestic scenario:
  - Sub-Saharan Africa annual GDP growth increases by 0.15 percentage point.
  - South Africa and Eastern Africa see increases of 0.2 percentage point.
  - DR Congo and Western Africa could face small GDP losses.
- International scenario:
  - All sub-Saharan African economies realize gains in annual GDP growth ranging from about 0.3 to 0.45 percentage point.
  - Overall GDP growth in sub-Saharan Africa rises by 0.4 percentage point.
- Mix scenario:
  - Sub-Saharan Africa’s GDP increases by approximately 0.3 percentage point.
- Mechanisms:
  - Greater external financing reduces crowding out and yields larger macroeconomic gains.
  - Mix scenario: GDP rise driven by higher investment and private consumption; net exports decline relative to baseline.
  - Mix scenario by 2030: overall domestic production increases by approximately 6 percent in sub-Saharan Africa; manufacturing output increases by 4 percent; services (including electricity) increase by 11 percent; agriculture declines by about 15 percent.
  - With only domestic financing, overall domestic production increases by only 2 percent.

### Financing scale-up via an illustrative $100 billion annual global flow (NCQG-inspired)
- Advanced economies pledged at least $100 billion per year in climate finance (Copenhagen Accord, 2009); commitment extended to 2025 with NCQG to be set before 2025.
- Advanced economies mobilized $103.6–$115.9 billion in 2022.
- IMF-ENV illustrative Rajan allocation rule:
  - Annual flows of $100 billion starting in 2025 allocated by difference between national and global per capita emissions.
  - At aggregate level, sub-Saharan Africa would receive about half of total funding flows by 2035.
  - 2030 allocation share to sub-Saharan Africa is 38 percent in the illustrative scenario.
  - Contributions from advanced economies ≈ 0.1 percent of their GDP; sub-Saharan Africa would collectively receive funds equivalent to 1.6 percent of its GDP in 2035.
- Illustrative allocation to renewable energy:
  - $25 billion per year (half of about $50 billion flowing to sub-Saharan Africa in the illustrative scenario) assigned to renewable energy sector.
  - Allocation rules considered within power generation:
    1. Solar & Wind: funds exclusively to solar PV and wind.
    2. Transmission & Distribution (T&D): funds to T&D alongside solar PV and wind.
    3. Energy Efficiency: investments also targeted to energy-efficiency improvements.
- Electricity supply impacts by 2035 (relative to baseline):
  - Total electricity generation in sub-Saharan Africa increases by about 17 percent to 18 percent across scenarios.
  - Solar and wind generation increases by 24 percent.
  - Regional extremes: wind and solar PV increase as high as 76 percent to 90 percent in Eastern and Western African regions under Solar & Wind scenario.
  - Even when funds target generation, additional T&D investments within model increase fossil and other renewables generation via improved grid infrastructure.
  - Energy Efficiency scenario yields marginally lower growth in power generation due to reduced energy requirements.

### Employment, sectoral, and GDP-level impacts (2025–2035)
- Labor demand to 2035 (relative to baseline):
  - Electricity sector labor demand increases by about 8 percent to 9 percent under each investment option.
  - Renewable generation labor demand rises by 15 percent to 17 percent.
  - Fossil generation labor demand increases by 3 percent to 4 percent due to improved grid structures.
  - Manufacturing sector labor demand increases by about 9.5 percent.
  - Employment falls by 18 percent in the fossil mining sector (with a small increase in other mining activities).
  - Employment falls by 4 percent in all services sectors (excluding electricity sector).
- Aggregate GDP impact by 2035:
  - Sub-Saharan Africa would benefit from a GDP boost of about 9 percent compared to baseline across all three scenarios.
  - This equates to 0.8 percentage point added every year to GDP growth on average between 2025 and 2035.
  - Eastern, Middle, and Western African regions show the most significant gains.
  - South Africa would see a slight decrease in GDP level as it transitions from contributor to recipient only between 2032 and 2035.

### Empirical evidence: reforms, climate policies, climate finance, and green FDI
- Sample and methods:
  - Empirical sample: 39 sub-Saharan African economies, 2000–21.
  - Methods: local projection method (Jordà 2005) for dynamic effects of reforms; pseudo-Poisson maximum likelihood for FDI announcements.
- Official climate finance and needs:
  - Sub-Saharan Africa received $15.7 billion of concessional climate finance in 2020.
  - Estimated needs for all of Africa:
    - $50 billion per year until 2050 for adaptation.
    - $190 billion per year until 2030 for mitigation.
- Impact of first-generation market reforms:
  - A major first-generation reform bundle is associated with a 20.1 percent increase in climate finance through grants and concessional debt over five years.
  - Dollar magnitudes: about $28–$318 million for countries at the 25th and 75th percentiles of climate finance distribution, respectively.
  - Robust result: governance and external sector reforms show stronger association with official funding flows than business regulation reforms.
- Climate policies and green FDI:
  - Cumulative announced green FDI to sub-Saharan Africa, 2003–21: $50.7 billion ($ in 2000), ≈ 4 percent of region’s GDP in 2021.
  - Distribution: South Africa ~ one-third; Nigeria 16 percent; Mozambique and Ethiopia 7–8 percent each; rest of Eastern Africa 18 percent.
  - EMDEs sample association: a 1 percent increase in climate policies is associated with a 0.5 percent increase in US dollar value of green FDI announced the following year.
  - SSA-specific estimate: about 0.9 percent (not statistically significant).
  - Stronger association for renewable-targeted policies: a 1 percent increase in climate policies is associated with a 1.3 percent increase in FDI announcements for solar and wind.
- Reforms and power generation:
  - A major first-generation reform is followed by a 7.2 percent increase in power generation over five years (about 3,400 GWh).
  - Major climate-policy adoption on average is followed by an about 40 percent increase in renewable (solar and wind) power generation over a four-year period.
- Comparative policy uptake:
  - Average number of climate policies adopted, past two decades:
    - Sub-Saharan Africa: 10 per country, on average.
    - Other EMDEs: more than 30 per country, on average.

### Country examples and practical developments
- Tanzania:
  - Electricity access rose from 9 percent in 2000 to 46 percent in 2022.
  - 135 mini-grids in 2023; ~80 percent use solar and hydropower technology; 50 percent of mini-grids’ installed capacity uses diesel, 35 percent uses solar and hydro.
  - About 75 percent of mini-grids privately held in 2023 (Small Private Producers Framework).
- Namibia:
  - Solar PV share of total installed capacity rose from 2 percent in 2015 to 42 percent in 2022.
  - Policy examples: 2015 Renewable Energy Feed-in Tariff program; Green Hydrogen Project targeting 10–12 million tons of green hydrogen by 2050.
  - Financing vehicle example: SDG Namibia One to raise funds from local and international investors.

### Market reforms, policy sequencing, and mobilizing finance — empirical policy implications
- First-generation reforms (governance, external sector, business regulation) and climate-policy portfolios together:
  - Strengthen links to official climate finance flows and private green FDI.
  - Policy sequencing observed in successful cases: start with expenditure-generating policies (subsidies, feed-in tariffs, power-purchase agreements), then regulation (energy efficiency), then revenue-generating instruments (carbon pricing, emissions trading).
  - Risk of policy reversal can reduce green FDI (example cited: Mexico).

### Policy recommendations and priorities (summarized)
- Advance governance and external sector reforms to strengthen links with official climate finance flows.
- Scale up climate policy portfolios—sequenced from expenditure-generating measures to regulatory frameworks and revenue-generating instruments—to attract green FDI.
- Mobilize a mix of domestic and external financing; climate finance is crucial for economies with limited fiscal space.
- Use domestic revenue options (carbon taxes, repurposing fossil-fuel subsidies, mining of critical minerals) tailored to country circumstances to finance green energy investments.
- Define an ambitious international financing goal (NCQG) at COP29; illustrative $100 billion scenario shows sizable potential gains for renewable generation and GDP.
- Manage workforce transition from fossil-fuel sectors to renewable energy.

### Model caveats, calibration, and key technical notes
- IMF-ENV model:
  - Recursive-dynamic neoclassical global general equilibrium model calibrated with GTAP v11 (2017) and GTAP-Power v11 inputs.
  - Core features: vintage capital, Armington trade specification, fixed factors not mobile across countries, savings-driven investment closure, external closure fixing current account to baseline.
  - Model limitations: does not explicitly model debt instruments or distinguish government vs private investments; does not capture borrowing frictions or political resistance; may overestimate long-term decarbonization costs by not including radical future technologies.
- Calibration and scenario inputs:
  - Baseline carbon prices include Kenya $18.72/tCO2e (2021 held constant) and South Africa rising to $30/tCO2 by 2030.
  - Macroeconomic trends 2024–29 based on IMF World Economic Outlook 2024; post-2029 based on SSP2.
  - Electricity mix calibrated with IRENA data; GHG emissions calibrated with UNFCCC data.
- Key elasticity and substitution parameters preserved from model calibration (selected examples):
  - Substitution between intermediate demand and value-added bundles: 0.2 for agricultural sectors; [0.4; 1.0] for manufacturing and services; [0.1; 0.81] for energy sectors.
  - Elasticity between electricity and non-electricity energy bundle: 0.125 for old vintages, 1 for new vintages in nonenergy sectors; 0.05 for all vintages in electricity.
  - Armington trade elasticity ranges reported from 0.9 to 5 (domestic vs imports) and 0.9 to 10 (import origins).
- Additional model results on electricity prices (net effects):
  - Reported declines in electricity prices:
    - DR Congo: 13 percent
    - Ethiopia: 20 percent
    - South Africa: 4 percent
    - Western Africa: 1 percent
    - Middle Africa: 7 percent
    - Southern Africa: 5 percent
  - Price increases in other regions range between 5 and 10 percent.
  - Note: declines may not materialize where prices are administratively kept below production costs.

*Source: IMF staff calculations; IMF Staff Climate Note (clnea2024005).*

### Introduction

### Introduction

### Context and Need
- Approximately half of the sub-Saharan African population lacks electricity, and those connected pay almost double the global rate.
- The region’s population is projected to double by 2050, reinforcing rising electricity demand as manufacturing and services expand.
- To meet future energy demands while honoring the 2015 Paris Agreement, sub-Saharan Africa needs a sustainable energy transformation rather than reliance on coal, oil, and traditional biomass.

### Renewable Potential and Developmental Benefits
- Significant cost reductions in solar, wind, and utility-scale batteries have driven exponential growth in global investments (Creutzig and others 2017).
- Africa has excellent conditions for renewables, especially solar; auction prices for utility-scale solar power have declined steadily (Kruger and Eberhard 2023).
- Developmental benefits of renewables and green technologies include:
  - Reduced dependency on volatile global fossil fuel markets.
  - Minimized harmful air pollution.
  - Avoided risk of stranded fossil fuel assets.
  - Health improvements, better access to information and communication infrastructure, and increased productivity of micro-enterprises (Mugisha and others 2021).
  - Contributions to climate adaptation (e.g., irrigation and refrigeration in off-grid regions).

### Technical Feasibility and Integration
- A transition to an electricity system consisting entirely of renewable energy is technically possible (Barasa and others 2018).
- Hydropower plants can function as “virtual batteries” to compensate when solar and wind output is low.
- Integrating desalination and industrial gas production during renewable surpluses could increase system efficiency.
- A dense electricity network enabling continental electricity trade would be required.
- Models anticipate implementing a full renewable system would require time—20 to 30 years.
- Existing and proposed renewable plants in sub-Saharan Africa could cover a large part of total electricity needs by 2040 (Peters and others 2024).
- Cáceres and others (2022) find potential hydropower losses from climate change could be compensated by other renewables.

### Investment Needs and Financing Constraints
- The IEA (2022) estimates funding needs for Africa’s electricity-sector modernization at $25 billion per year.
- Renewable projects have higher upfront capital costs, whereas fossil fuel plants have lower upfront costs but higher operational costs (fuel purchases).
- Onshore wind and solar photovoltaic (PV) have a high capital expenditure share (see Beiter and others 2024).
- Diverse financing is required from public actors, private investors, and the international community; climate financing for adaptation is also needed.
- Developing bankable projects and addressing implementation bottlenecks are critical to accessing public and private climate finance (Arezki 2021; Belianska and others 2022; IMF 2023a).
- Geopolitical fragmentation threatens access to external finance (Bolhuis and others 2024).
- China’s role: According to the Financial Times fDi Markets database, China invested $4.7 billion into fossil fuel extraction in sub-Saharan Africa and $3.3 billion in fossil fuel electricity generation in the period from 2003 to 2022, compared to only $1.5 billion in renewable energy; none of the fossil fuel investments occurred after 2018, and renewable energy investments are increasing.
- Mission 300 (World Bank and AfDB) aims to provide access to at least 300 million people in Africa by 2030 (World Bank 2024).

### Policy, Market Reform, and Institutional Challenges
- Key approaches to enable renewable energy in emerging market and developing economies include:
  - Creating a level playing field between renewable energy and fossil fuels (mainly by phasing out fossil fuel subsidies).
  - Providing easy market access to private investors.
  - Mitigating political and regulatory investment risks (UNEP 2012).
- Poor utility performance and weak state capacity are key constraints to electricity-sector development (Eberhard and others 2017; Foster, Eberhard, and Dyson 2021).
- Improving on-grid and off-grid supply, power reliability, energy efficiency, and regional electricity trade would increase GDP and wages in sub-Saharan Africa (Rojas Romagosa and others 2024).
- Gradually increasing the role of private power investments (PPIs) can attract renewable investment and complement or replace state-owned utilities.
- Independent regulatory agencies can improve performance and reduce institutional deficiencies’ negative effects (Imam, Jamasb, and Llorca 2019).
- Managing the workforce transition from fossil fuel sectors to renewable energy will be essential (Ferroukhi, Reiner, and El-Katiri 2022; IMF 2024).

### Research Questions and Methodology
- The note’s specific questions:
  1. What will the sub-Saharan African energy mix look like under alternative degrees of climate ambition?
  2. What economic, employment, and energy impacts can sub-Saharan Africa anticipate from improving the existing power capacity and increasingly shifting toward renewable energy for future energy needs?
  3. How do these effects vary with financing options, differentiating between external finance and domestic financing, toward sustaining the capital costs for setting up new renewable capacity?
  4. What reforms and policies are needed to reduce barriers to mobilize financing for renewable energy and boost renewable electricity generation?
- Methods used:
  - Existing data and IPCC scenarios for alternative climate-ambition pathways.
  - IMF-ENV model (global dynamic computable general equilibrium model) to simulate macroeconomic impacts of alternative policies.
  - Econometric analysis of market reforms and climate policies’ effects on attracting climate finance and boosting clean electricity generation.

### Current Energy Landscape and Trends
- In 2020, sub-Saharan Africa’s energy mix was dominated by biomass, followed by oil; biomass is mostly used for cooking and oil for transportation and heating.
- Electrification enables renewable use in cooking, transportation, and heating, aiding decarbonization (Luderer and others 2022).
- Emissions per capita are low relative to other EMDEs; a large portion of total CO2 emissions in sub-Saharan Africa (except South Africa) is concentrated in the transport sector (see Annex Figure 3.1).
- Electricity production trends (2000–2021):
  - Coal accounted for 43 percent of electricity generation in 2021 (mostly used in South Africa).
  - Hydropower had a 30 percent share in 2021.
  - Natural gas had a 13 percent share in 2021.
  - Nuclear energy production was very small and approximately constant.
  - Geothermal reached 1 terawatt-hour (TWh) in 2005; solar reached 1 TWh in 2014; wind reached 1 TWh in 2016.
  - Between 2011 and 2021, solar and wind production was 78 times larger in 2021 than in 2011.
- Renewable additions:
  - Net additions to total electricity production were higher than net additions in renewable energy sources for most of the last 20 years.
  - In recent years, renewable energy additions have exceeded the increase in total electricity generation—meaning renewables compensated for decreases in other sources, mostly coal.
  - Of the increase in renewable energy between 2018 and 2021 in sub-Saharan Africa, 79 percent came from hydropower and 18 percent from solar energy.
- Despite growth, sub-Saharan Africa remains the continent with the lowest share of solar and wind in the electricity mix globally.
- Since 2004 electricity generation per capita has trended downward while GDP per capita has trended upward, implying the electricity shortage is constraining per capita GDP growth and could more heavily drag on growth if continued (Hardy and McCasland 2021; Mensah 2024).

*IMF | Staff Climate Note — Introduction (clnea2024005)*

### Annex Table 1.2 for details on subregions). Given

### Annex Table 1.2 for details on subregions). Given

### Regional heterogeneity in energy use and current generation mix
- South Africa accounts for 48 percent of sub-Saharan Africa’s total electricity generation.
- South Africa contributes 95 percent of coal-generated electricity across sub-Saharan Africa.
- South Africa is the only subregion/country within sub-Saharan Africa to generate significant quantities of electricity from solar and nuclear sources.
- More than two-thirds of electricity production from oil and natural gas is present in certain subregions within sub-Saharan Africa.
- In four countries or subregions (DR Congo, Ethiopia, “Middle other,” and “Eastern other”), more than half of electricity generation comes from hydropower.
- Kenya sources half of its electricity generation from geothermal power.

### The future electricity mix: technological drivers and expectations
- Solar and wind energy are identified as the only low-carbon energy sources that can be scaled sufficiently to power Africa’s expected development.
- Between 2010 and 2022: solar energy cost declined by 89 percent; onshore wind energy cost declined by 69 percent (IRENA 2023).
- Technological progress in balancing intermittency (see Pietzcker and others 2017) has changed scenario results toward solar and wind dominance.
- Studies cited argue that the entire African electricity system can be based on renewable energy (Bogdanov and others 2019; Barasa and others 2018; Sterl and others 2021; Bamisile and others 2023).

### IPCC scenario results for sub-Saharan Africa’s electricity production
- Scenarios compared: 1.5°C, 2°C, and 3°C (3°C representing limited additional policy action).
- Number of scenarios in database: 97 scenarios in the 1.5°C category, 310 scenarios for 2°C, and 96 scenarios for 3°C.
- Electricity production projections (median scenario values):
  - 2020: about 2 exajoule (EJ).
  - By 2050: median values of 8.5 EJ for 3°C, 12.5 EJ for 2.5°C, and 18.6 EJ for 1.5°C.
- Even in the 3°C category, solar and wind gain market share steadily until 2050.
- In the 2°C category, the fossil fuel share is expected to decrease below the share of hydropower and geothermal energy already in 2035.
- In the 1.5°C category:
  - Median share of solar and wind energy would increase to almost 75 percent of the electricity mix by 2050.
  - The share of fossil fuels would fall nearly to zero by 2040.
  - Hydropower and geothermal energy would increase in absolute terms, though their share remains similar across categories toward the end of the horizon.

### IMF-ENV baseline scenario: projected changes to 2035
- Simulation start year: 2017 (historical trends replicated until 2022); simulations extend through 2035.
- Under baseline assumptions (policies already announced + continued cost declines):
  - Total power generation in sub-Saharan Africa would increase by a factor of 1.7 by 2035 compared to 2021.
  - Solar and wind generation would increase by a factor of 5.6 compared to 2021.
  - Other non-fossil fuel–based technologies would increase by a factor of 2.2.
  - Fossil fuel–based technologies would grow by a factor of 1.3.
  - Share of all renewable energy sources climbs from 31 percent in 2021 to 47 percent by 2035.
  - Total electricity generation increases from 520 TWh to approximately 880 TWh by 2035.
  - Hydropower plays the largest role in absolute terms with 300 TWh in 2035.
- Regional composition and dynamics to 2035:
  - South Africa: reduction in coal generation driven by carbon pricing enforcement and Eskom decommissioning; increase in solar and wind.
  - Nigeria, Eastern Africa, Western Africa, Middle Africa: natural gas is the main driver of increased fossil-fuel–based generation; followed by oil (diesel) in Eastern Africa, Western Africa, and Middle Africa.
  - Hydropower generation expands in Eastern Africa, Western Africa, Middle Africa, Ethiopia, and the Democratic Republic of Congo.
  - Overall hydropower generation in sub-Saharan Africa would increase by a factor of 2.3 between 2021 and 2035 in the IMF-ENV baseline scenario.
- Note: nuclear generation is part of the electricity sector only in South Africa; between 2021 and 2030 the share of nuclear generation falls from 3 percent to 2 percent in the baseline for sub-Saharan Africa.

### Financing strategies for scaling renewables and macroeconomic implications
- Three illustrative financing strategies modeled:
  1. Domestic scenario: new investments fully funded by reallocating domestic resources.
  2. International scenario: new investments entirely financed from abroad.
  3. Mix scenario: 50 percent domestic financing and 50 percent international financing (illustrative).
- Investment shock specification:
  - Total annual new investments in solar and wind sectors are 0.5 percent of baseline GDP higher annually until 2030 (in addition to the accumulated capital stock amounting to 0.5 percent of sub-Saharan Africa’s GDP in renewable electricity sectors under the baseline).
  - 0.5 percent of GDP investment shock is equivalent to annual spending of about $12 billion in total in sub-Saharan Africa by 2030.
- Productivity assumptions:
  - Simulations conservatively assume investments sufficient to modernize the electricity sector (estimated at $25 billion per year by IEA 2022) would lead to a 5 percent improvement in productivity by 2035.
  - Estimates of long-term labor productivity improvements from eliminating power outages average 15 percent across four significant economies; simulations scale productivity shocks proportionally to renewable investment increases.
- Macroeconomic outcomes (average annual GDP growth impacts between 2025 and 2030, relative to baseline):
  - Domestic scenario: sub-Saharan Africa annual GDP growth increases by 0.15 percentage point; South Africa and Eastern Africa see increases of 0.2 percentage point; DR Congo and Western Africa could face small GDP losses.
  - International scenario: all sub-Saharan African economies realize gains in annual GDP growth ranging from about 0.3 to 0.45 percentage point; overall GDP growth in sub-Saharan Africa rises by 0.4 percentage point.
  - Mix scenario: sub-Saharan Africa’s GDP increases by approximately 0.3 percentage point.
- Mechanisms and sectoral impacts:
  - Greater reliance on external financing yields larger macroeconomic benefits by reducing crowding-out of other sectors.
  - In the mix scenario, GDP increase is driven by higher investment and private consumption while net exports decline relative to baseline.
  - Under the mix scenario by 2030: overall domestic production increases by approximately 6 percent in sub-Saharan Africa; manufacturing output increases by 4 percent; services (including electricity) increase by 11 percent; agriculture declines by about 15 percent.
  - With only domestic financing, overall domestic production increases by only 2 percent.

*IMF staff calculations using IMF-ENV model; calibrated with IRENA data and IPCC scenario databases as described in the source document.*

### 0.2 percent in manufacturing and a modest increase of 6 percent in the services sector. The decline in the

### clnea2024005 - 0.2 percent in manufacturing and a modest increase of 6 percent in the services sector. The decline in the

### Decomposition of GDP impacts (Domestic and Mix scenarios)
- Results are calculated as percentage change relative to the baseline using IMF-ENV.
- In the demand-side decomposition (2030): change in government consumption (G) is fixed to baseline; change in G relative to baseline is zero.
- In the supply-side decomposition (2030): services include the electricity sector; output of the services sector, excluding electricity sector, increases by 2 percent and 5 percent, respectively, under the domestic and mix scenarios.
- Regional and country labels use ISO country codes; regional abbreviations are referenced to Annex Table 1.2.

### Model caveats and closure rules
- Productivity channel associated with increased electricity supply is conservatively calibrated, likely underestimating GDP gains.
- IMF-ENV captures falling prices of renewables but does not capture barriers such as frictions to borrowing, political resistance, inefficiencies in power market structure, and lengthy bureaucratic processes.
- The model does not allow for debt financing; financing composition (debt, equity, grants, government revenues) is not explicitly modeled.
- The model does not distinguish between government and private investments; these are captured as an aggregate quantity.
- IMF-ENV uses a savings-driven investment closure: regional savings rate (as a share of GDP) is exogenously defined and determines total investments. Absent additional savings, total domestic investments are affected in a limited manner under the domestic scenario.
- External closure fixes the current account as a share of GDP to baseline values in policy simulations. Under mix and international scenarios, foreign savings increase by the amount of transfers received.

### Enhanced international cooperation and the $100 Billion Goal
- Background:
  - High-income countries pledged at least $100 billion per year in climate finance from 2020 onward (Copenhagen Accord, 2009); modalities were not clarified.
  - Commitment extended to 2025 under the Paris Agreement, with a new collective quantified goal (NCQG) to be set before 2025.
  - Advanced economies exceeded $100 billion annual goal for the first time in 2022, mobilizing $103.6–$115.9 billion.
  - Of climate finance disbursed by advanced economies during 2016–20, only a quarter went to Africa, including North Africa.
  - Definition of NCQG planned for COP29 in November 2024.
- IMF-ENV illustrative assumption: annual flows of $100 billion starting in 2025, allocation determined by difference between national and global per capita emissions (Rajan proposal).
- Under the Rajan allocation:
  - At the aggregate level, sub-Saharan Africa would receive about half of the total funding flows by 2035.
  - In this note, the 2030 allocation share toward sub-Saharan Africa is 38 percent.
  - Contributions from advanced economies toward $100 billion would represent about 0.1 percent of their GDP; sub-Saharan Africa would collectively receive funds equivalent to 1.6 percent of its GDP in 2035.

### Illustrative financing assumptions and sectoral allocation
- Assumptions:
  - $25 billion per year (half of the about $50 billion flowing to sub-Saharan Africa in the illustrative scenario) assigned to the renewable energy sector.
  - Flows assumed as transfers for simplicity; in practice, financing would include debt instruments, grants, and equity.
  - Transfer-based assumption likely overestimates GDP impact; overestimation is muted if grant component is smaller.
- Three alternative investment strategies for allocation within power generation:
  1. Solar & Wind: funds exclusively toward solar photovoltaic (PV) and wind generation.
  2. Transmission and distribution (T&D): funds extend to T&D alongside solar PV and wind.
  3. Energy Efficiency: investments also contribute to improvements in energy efficiency, unbiased across technologies.
- Allocation rules:
  - Solar & Wind: distribution proportional to share of investments these sectors receive under baseline.
  - T&D: allocation across solar, wind, and T&D determined by baseline investment shares—reduces share going to wind and solar.
  - Energy Efficiency: same level of output produced with less energy inputs relative to baseline; benefits both fossil fuel–based and renewable sectors.

### Electricity supply impacts (2035, relative to baseline)
- Total electricity generation in sub-Saharan Africa increases by about 17 percent to 18 percent across scenarios.
- Solar and wind generation increases by 24 percent.
- Solar PV and wind generation boost observed in all sub-Saharan African countries.
- Regional extremes: increase in wind and solar PV as high as 76 percent to 90 percent in the Eastern and Western African regions under the Solar & Wind scenario.
- Even when funds target renewable generation, additional investments in T&D occur within the model, leading to increases in fossil fuel and other renewables-based generation due to improved grid infrastructure.
- In the Energy Efficiency scenario, growth in power generation sectors is marginally lower due to reduced energy requirements for producing output.

### Labor demand and GDP impacts (Sub-Saharan Africa, 2025–2035)
- Electricity sector labor demand increases by about 8 percent to 9 percent by 2035 under each investment option.
- Renewable generation labor demand rises by 15 percent to 17 percent.
- Fossil generation labor demand increases by 3 percent to 4 percent due to improved grid structures.
- Manufacturing sector labor demand increases by about 9.5 percent relative to baseline, supported by increased electricity supply.
- Employment falls by 18 percent in the fossil mining sector (with a small increase in other mining activities).
- Employment falls by 4 percent in all services sectors (excluding the electricity sector).
- Aggregate GDP impact:
  - Collectively, sub-Saharan Africa would benefit from a GDP boost of about 9 percent by 2035 compared to baseline across all three scenarios.
  - This equates to 0.8 percentage point added every year to GDP growth on average between 2025 and 2035.
  - Eastern, Middle, and Western African regions would see the most significant gains.
  - South Africa would see a slight decrease in GDP level as it transitions from contributor to recipient only between 2032 and 2035.

### Market reforms, climate policies, and empirical strategy
- Hypothesis: market reforms and climate policies reduce barriers and create incentives to mobilize financing for renewable energy.
- Empirical approach:
  - Sample: 39 sub-Saharan African economies over 2000–21.
  - Variables: number of climate policies implemented and structural indicators covering governance, business regulations, trade, and external finance.
  - Methods:
    - Local projection method (Jordà 2005) to estimate dynamic effects of reforms on outcome variables; major reforms defined as improvement at least as large as two standard deviations of annual changes in the indicator across the sample.
    - For announced FDI inflows (many zeros), the pseudo-Poisson maximum likelihood estimator is used.
- Rationale:
  - First-generation reforms (governance, external sector, business regulation) can boost activity in the short and medium term by increasing labor productivity, competition, and investor confidence, fostering investment and supporting green transition.
  - Coverage of climate policies is comprehensive (carbon prices, subsidies, regulation, information and education, climate targets), but the data measures count of policies, not quality.

### Policy gaps and priorities
- Sub-Saharan Africa lags peers in market reforms and climate policies, especially in governance and external sector reforms and in the number of climate policies implemented.
- Greater attention to governance, business regulation, external sector reforms, and scaling climate policy implementation is called for to unlock finance and support the green transition.

*Source: IMF staff calculations using IMF-ENV model (content from IMF Staff Climate Note).*

### 1. Structural Indicators 2. Average Number of Climate Policies

### 1. Structural Indicators 2. Average Number of Climate Policies

### Data and indicators
- Sources: Climate Policy Database; Fraser Institute; World Bank; and IMF staff calculations.
- Structural indicators range between 0 and 1, with higher values implying better perceived quality of institutions (governance) and greater degree of liberalization (external sector and business regulation).
- External sector reforms comprise capital and exchange rate controls, tariffs and nontariff barriers, financial openness, and freedom of foreigners to visit.
- The Climate Policy Database is the most comprehensive available data set on climate policies, but it is not complete for emerging market and developing economies (EMDEs).
- SSA = sub-Saharan Africa.

### Official climate finance: current gaps and financing instruments
- Sub-Saharan Africa received $15.7 billion of concessional climate finance in 2020.
- Estimated needs for all of Africa:
  - $50 billion per year until 2050 for adaptation.
  - $190 billion per year until 2030 for mitigation.
- Policy implication: leverage a wide range of instruments beyond concessional sources, including multilateral development bank risk-sharing mechanisms, sustainability-linked bonds, public-private partnerships, and other financing solutions.

### Impact of first-generation market reforms on official climate finance
- Empirical finding: a major first-generation reform bundle (governance, business regulations, external sector reforms) is associated with a 20.1 percent increase in climate finance through grants and concessional debt over five years.
- Corresponding dollar magnitudes for countries at distributional percentiles:
  - About $28–$318 million for countries at the 25th and 75th percentile of the distribution of climate finance, respectively.
- Sample and period: 39 sub-Saharan African countries, 2000–21.
- More granular result: governance and external sector reforms present a stronger statistical association with official funding flows than business regulation reforms.
- Robustness: results are robust to excluding South Africa from the sample.

### Climate policies uptake in SSA vs other EMDEs
- Average number of climate policies adopted and implemented over the past two decades:
  - Sub-Saharan Africa: 10 per country, on average.
  - Other EMDEs: more than 30 per country, on average.
- Caveats: climate policy coverage may be incomplete for some SSA countries; official financiers may be driven by developmental motives, weakening correlation between climate policies and finance inflows.
- Outlook: as SSA converges to other EMDEs in climate action, international community may increase official climate finance flows.

### Green FDI: magnitudes, distribution, and policy associations
- Cumulative announced green FDI toward sub-Saharan Africa, 2003–21: $50.7 billion ($ in 2000), approximately 4 percent of the region’s GDP in 2021.
- Distribution of announced green FDI (approximate shares):
  - South Africa: almost a third.
  - Nigeria: 16 percent.
  - Mozambique and Ethiopia: 7–8 percent each.
  - Rest of Eastern Africa: 18 percent.
- Econometric associations (sample of 115 EMDEs, 39 SSA countries, 2003–21):
  - In EMDEs: a one-percent increase in climate policies is associated with a 0.5 percent increase in US dollar amount of green FDI announced during the following year.
  - SSA-specific estimate: about 0.9 percent, but not statistically significant (insensitive to inclusion of South Africa).
- Stronger associations for policies targeting renewable energy:
  - A 1 percent increase in climate policies is associated with a 1.3 percent increase in FDI announcements supporting solar and wind activities.
- Policy sequencing observed in successful EMDE cases: start with expenditure-generating policies (subsidies, feed-in tariffs, power purchasing agreements), followed by regulation (energy efficiency), and later revenue-generating policies (carbon pricing, emissions trading systems).
- Risk: reversal of policy support can reduce green FDI (example observed in Mexico).

### Power generation and renewables: effects of reforms and policies
- Context: power generation in SSA has not kept pace with population growth and output per capita; increasing renewable power generation is critical.
- First-generation market reforms and total power generation:
  - A major first-generation reform is followed by a 7.2 percent increase in power generation over a five-year period.
  - This increase represents about 3,400 GWh.
  - The positive effect is mainly driven by external sector reforms and business regulation reforms.
  - Robustness: results are robust to excluding South Africa.
- Climate policies and total power generation:
  - Climate policies do not show a statistically significant association with total power generation (plausible explanation: small share of renewables in total generation).
- Renewables (solar and wind) generation:
  - Both first-generation reforms and climate policies are associated with increases in renewable power generation.
  - Adoption of major policies is on average followed by an increase of about 40 percent in renewable power generation over a four-year period (local projections horizon restricted to four years because renewables data coverage is 2010–21).
  - The effect of first-generation reforms on renewables is mostly explained by business regulation reforms and, to a lesser extent, external sector reforms.
  - Energy sector climate policies are generally followed by larger renewable power generation increases than transport sector reforms.

### Country cases: Tanzania and Namibia (high-level takeaways)
- Tanzania:
  - Electricity access increased from 9 percent of the population in 2000 to 46 percent in 2022.
  - Rapid electrification relied on grid extension, decentralization, and mini-grids (135 mini-grids in 2023; about 80 percent use solar and hydropower technology; 50 percent of mini-grids’ installed capacity uses diesel, 35 percent uses solar and hydro).
  - Private sector involvement incentivized by the Small Private Producers Framework (about 75 percent of mini-grids privately held in 2023).
- Namibia:
  - Solar photovoltaic share of total installed capacity rose from 2 percent in 2015 to 42 percent in 2022.
  - Policy support examples: 2015 Renewable Energy Feed-in Tariff program, decentralized systems, Green Hydrogen Project targeting 10–12 million tons of green hydrogen by 2050.
  - Financing vehicle example: SDG Namibia One to raise funds from local and international investors.

### Scenario: NCQG-inspired $100 billion annual target (illustrative)
- Scenario assumptions: an annual target of $100 billion starting in 2025, allocated where countries contribute or receive funds proportional to relative per capita emissions.
- Distributional results under this allocation rule:
  - Sub-Saharan Africa would receive approximately half of the total funding flows.
  - Contributions from advanced economies would amount to about 0.1 percent of their GDP.
  - Sub-Saharan Africa would collectively receive funds equivalent to about 1.6 percent of its GDP.
- Potential impacts if half of SSA funds directed primarily to green power generation:
  - Renewable electricity production would increase by up to 24 percent relative to a scenario excluding these financing flows.
  - Annual GDP growth would be boosted by an additional 0.8 percentage point.
  - Overall rise in labor demand within the electricity sector over the next decade.

### Conclusions and policy implications
- Renewables are an important pathway for SSA’s electricity supply and green growth given geographic advantages (solar and wind) and hydropower’s supporting role.
- Key empirical links:
  - A major bundle of first-generation reforms is associated with a 20.1 percent increase in climate finance flows (grants and concessional debt) and a 7.2 percent increase in total power generation over five years.
  - In EMDEs, a 1 percent increase in the number of climate policies is associated with a 0.5 percent increase in green FDI announcements during the following year.
  - Major pushes to market reforms and climate policies are both strongly linked to significant increases in renewable power generation (about 40 percent increase over four years after adoption of major policies).
- Policy recommendations and priorities:
  - Advance governance and external sector reforms to strengthen links with official climate finance flows.
  - Scale up climate policy portfolios—sequenced from expenditure-generating measures to regulatory frameworks and revenue-generating instruments—to attract green FDI.
  - Mobilize a mix of domestic and external financing; climate finance is crucial for economies with limited fiscal space.
  - Use domestic revenue options (carbon taxes, repurposing fossil-fuel subsidies, mining of critical minerals) tailored to country circumstances to finance green energy investments.
  - Define an ambitious international financing goal (NCQG) at COP29 to materially support SSA’s transition; the illustrative $100 billion scenario shows sizable potential gains for renewable generation and GDP.
- Overall message: removing structural barriers (governance, business regulation, external sector openness) and adopting robust climate policies can attract climate finance and green investments, materially boosting renewable electricity generation and supporting sustainable development in sub-Saharan Africa.

*Source: IMF staff calculations; IMF Staff Climate Note.*

### Annex 1. Further Results and Details of the Stylized Facts and Model Analysis

### Annex 1. Further Results and Details of the Stylized Facts and Model Analysis

### Further information and results on the Current Energy Landscape and Possible Future Scenarios
- The official database of the sixth assessment report of the IPCC (Byers and others 2022) contains all scenarios included in the report. Inclusion criteria require publication in a peer-reviewed journal or recognition by the IPCC as eligible gray literature.
- The scenarios are created with integrated assessment models that combine macroeconomic modeling with detailed representations of various emission sources, including the energy sector. Integrated assessment models do not provide sectoral and employment effects of changes to the energy system; these are covered in the computable general equilibrium analysis used in this note.

- Private power investments (PPIs)
  - There is a correlation between the share of electricity capacity constructed between 1995 and 2022 by PPIs and the share of total electricity capacity in 2022.
  - Comparison is made between the share of PPIs and the share of renewable energy (other than hydropower) in total electricity production.
  - Some countries have high levels of PPIs while having low levels of non-hydropower renewables; the reverse is not true.
  - Of the 18 countries with zero PPIs:
    - 9 also have no capacity in non-hydropower renewable energy.
    - Only half have achieved more than 0.5 percent non-hydropower renewables.
    - None was able to exceed 8.1 percent.
  - Since 2008, PPIs have been directed almost completely to renewable energy (Foster, Eberhard, and Dyson 2021).
  - In many countries, state-owned utility companies invest very little in renewable energy other than hydropower.

- Energy efficiency and electricity share in total energy
  - Energy consumption is expected to increase in all temperature scenarios and in all models because sub-Saharan Africa is assumed to converge to the output and energy use levels of high-income countries by the end of the twenty-first century.
  - More ambitious climate policy incentivizes higher energy efficiency (for example by phasing out fossil fuel subsidies), resulting in a lower increase in total energy consumption in more ambitious climate scenarios.
  - Electricity consumption increases with the degree of climate ambition. The share of electricity production in total energy in 2050 is:
    - 16.2 percent in the 3°C median scenario
    - 30 percent in the 2°C scenario
    - 44.6 percent in the 1.5°C scenario

### Technical description of the IMF-ENV model
- Model type and data
  - The IMF-ENV model is a recursive-dynamic neoclassical, global, general equilibrium model calibrated primarily with a database of national economies and bilateral trade flows (Chateau and others forthcoming).
  - Central input: version 11 of the Global Trade Analysis Project (GTAP) database (Aguiar and others 2023), based on data from 2017.
  - GTAP v11 includes country-specific input-output tables for 160 countries and 65 commodities, and comprehensive world trade flows for a given starting year.

- Economic agents, dynamics, and market features
  - Captures representative firms by sector, a regional representative household, governments, and markets.
  - Recursive-dynamic: solved as a sequence of comparative static equilibria; fixed factors are exogenous per time step and linked across periods via accumulation expressions.
  - Output production uses nested constant-elasticity-of-substitution functions to capture substitutability across inputs.
  - International trade modeled via Armington specification with a full set of bilateral flows and prices by traded commodity.
  - Primary factors are not mobile across countries. Model closures assume real government expenditure and current account constant to baseline values.
  - Capital market has real rigidities; labor market does not (labor and land can shift across sectors within a year with no adjustment cost; labor/land supply responds with some elasticity to net-of-taxes wage/land price).

- Vintage capital and short-/long-term substitution
  - Features vintage capital stocks: new investment is flexible and reallocable across activities until returns equalize; old capital is mostly fixed and cannot be reallocated across sectors without costs.
  - Short-term elasticities of substitution across inputs are much lower than in the long term.

- Emissions and abatement
  - Emissions of GHGs and other air pollutants linked to economic activities either with fixed coefficients (e.g., emissions from fuel combustion) or with emission intensities that decrease nonlinearly with carbon prices—marginal abatement cost curves.
  - The marginal-abatement specification applies to emissions associated with non-energy-input uses (e.g., nitrous oxide from fertilizer) or with output processes (e.g., methane from waste management, CO2 from cement).
  - The model may overestimate long-term decarbonization costs because it does not consider radical technology innovations whose future large-scale costs are uncertain (examples: hydrogen, second generation nuclear, biofuel, carbon capture and storage).

### Key model calibration parameters (Annex Table 1.1)
- Substitution between process emissions bundle and net-of-emissions output:
  - Specific values per gas and sector; positive values for GHG emissions; zero for air pollutants
- Substitution between intermediate demand and value-added bundles:
  - 0.2 for agricultural sectors
  - [0.4; 1.0] for manufacturing and services sectors
  - [0.1; 0.81] for energy sectors
  - Always 0 for old vintage technologies
- Substitution between intermediate goods and services:
  - 0 for agricultural sectors
  - [0.1; 0.4] for manufacturing and services sectors
  - 0.2 for energy sectors
- Substitution between capital and specific factor:
  - 0.2 for new and 0 for old vintage technologies
- Elasticity between electricity and non-electricity energy bundle:
  - 0.125 for old vintages, 1 for new vintages in all nonenergy sectors
  - 0.025 for old vintages, 0.22 for new vintages in non-electric energy
  - 0.05 for all vintages in electricity
- Elasticity between coal and non-coal bundle:
  - 0.0625 for old vintages
  - 0.55 for new vintages
- Elasticity between energy inputs in liquids bundle:
  - 0.125 for old vintages
  - 1.1 for new vintages
- Armington trade elasticity, domestic versus imports:
  - Varies from 0.9 to 5 depending on the sector, identical across regions. GTAP data are used.
- Armington trade elasticity, import origins:
  - Value equals from 0.9 to 10, generally twice higher than Armington trade elasticity for domestic versus imports

- Uses of the model
  - Scenario analysis: projects internally consistent trends for economic, sectoral, trade-related, and environmental variables up to 2050, and analyzes impacts of structural drivers (technological progress, living standards, preferences, production modes).
  - Quantitative policy assessment: assesses costs and benefits of policy instruments for reaching targets like GHG emission reductions.

### Model regions and country groupings
- Two major approaches for dividing Africa: African Union and United Nations geoscheme. This note follows the UN geoscheme (used by GTAP).
- Countries are grouped into Northern, Western, Central (Middle), Eastern, and Southern regions consistent with the UN geoscheme; Annex Table 1.2 lists each country and its model region.

### Scenario assumptions and calibration details
- Baseline carbon prices (based on OECD effective carbon rates database and South African government tax proposal):
  - Kenya: Fuel excise taxes resulted in an effective carbon price of $18.72/tCO2e in 2021 and this rate is held constant in the baseline.
  - South Africa: Carbon price starts in 2021 and is set to increase to $30/tCO2 by 2030 (Qu et al. 2023).
- For other sub-Saharan African countries and regions:
  - Emissions follow projections from the Climate Policy Assessment Tool CPAT until 2030 and are then driven by model dynamics until 2035.
  - Macroeconomic trends between 2024 and 2029 are based on the IMF’s World Economic Outlook 2024 database.
  - Post-2029 GDP growth projections are based on shared socioeconomic pathways (SSP) database, using the SSP2 scenario.
  - Population growth is taken from SSP2.
  - Electricity mix between 2017 and 2021 calibrated using IRENA data; GHG emissions calibrated using United Nations Framework Convention on Climate Change data.

- Cost structure and capital intensity of renewables
  - Scaling up renewable energy capacity requires significant investments due to capital intensity.
  - On a global scale in 2017, capital expenses accounted for an average of 60 percent to 65 percent of the overall input costs for solar PV and wind technologies (from GTAP Power V11 database).
  - Composition of intermediate costs includes electricity, services, and metal and mineral inputs, leading to regional variations.
  - In many sub-Saharan African countries and regions, capital inputs represent over half of total input costs for both solar PV and wind, with variability:
    - Ethiopia’s solar PV sector: capital costs are the predominant expense.
    - Kenya’s solar PV sector: intermediate inputs, primarily business services and manufacturing, make up more than half of total costs.
    - South Africa’s solar PV sector: capital and intermediate inputs (mostly services) each contribute around 40 percent to the total.
  - In the wind sector, intermediate costs are especially significant in Kenya and the Middle Africa region, with the largest cost share attributed to the business services sector.

### Green investments, financing modalities, and climate finance mechanics
- Green Investments specification:
  - New sectoral investments in solar and wind sectors are targeted and annually increase by a total of half percent (denoted by μ) of the region’s GDP, in addition to baseline investments.
  - If a region has only one of the two sectors, the entire half percent of GDP investment is allocated to that sector; otherwise it is split equally.
  - All investments are assumed to be publicly financed (rsg).
  - Difference across three simulations lies in shares of domestic financing (rsg_Bau) and external financing (ext_inv), captured by parameter θ:
    - θ = 0 in domestic policy
    - θ = 0.5 in mix policy
    - θ = 1 in external policy simulations
  - External financing represents any investment flow that does not draw down from the domestic investment pool.

- Climate Finance (Rajan rule implementation):
  - Transfer denotes contributions provided (negative transfers) or collected (positive transfers) by country r.
  - GCI denotes the global carbon incentive.
  - Population denoted by pop; per capita emissions by emi_pc.
  - GCI is calculated by dividing the targeted global climate finance goal, in this case 100 billion, by the transfers that would be realized in the reference scenario.

### Additional IMF-ENV results: electricity supply and prices under investment scenarios
- Scaling up renewables could lower electricity prices in many sub-Saharan African economies, but effects vary by region and depend on input price changes and labor demand.
- Capital-intensive nature of renewable generation means climate finance channels capital to the sector, reducing its cost, while scaling up production increases demand for labor and intermediate inputs, affecting wages and intermediate input prices.
- Net effects on electricity prices (reported declines in some regions and increases in others):
  - Declines:
    - DR Congo: 13 percent
    - Ethiopia: 20 percent
    - South Africa: 4 percent
    - Western Africa: 1 percent
    - Middle Africa: 7 percent
    - Southern Africa: 5 percent
  - Increases:
    - Other regions: range between 5 and 10 percent
- Note: Price declines may not occur in countries where electricity prices are artificially kept below production prices.

*Source: Annex 1, "Further Results and Details of the Stylized Facts and Model Analysis," IMF Staff Climate Note (clnea2024005) — IMF staff calculations and cited data sources as presented in the document.*

### Annex Figure 1.5. Change in Total Electricity

### Annex Figure 1.5. Change in Total Electricity

### Figure content and notes
- T&D: Electricity Supply (2035)
- Energy Efficiency: Electricity Supply (2035)
- Source: IMF staff calculations using IMF-ENV model
- Note: Refer to Annex Table 1.2. for the regional abbreviations. Data labels in the figure use International Organization for Standardization (ISO) country codes. T&D = transmission and distribution.

### Country coverage (empirical sample)
- Sample: 39 sub-Saharan African economies (country list provided in Annex Table 2.1).
- Income group classification: EM = emerging market; LIC = low-income country.
- Selected country-income pair examples from Annex Table 2.1:
  - Angola EM
  - Liberia LIC
  - Benin LIC
  - Madagascar LIC
  - Botswana EM
  - Malawi LIC
  - Burkina Faso LIC
  - Mali LIC
  - Burundi LIC
  - Mauritius EM
  - Cabo Verde EM
  - Mozambique LIC
  - Cameroon LIC
  - Namibia EM
  - Chad LIC
  - Niger LIC
  - Congo, Democratic Republic of the LIC
  - Nigeria LIC
  - Congo, Republic of LIC
  - Rwanda LIC
  - Côte d’Ivoire LIC
  - Senegal LIC
  - Eswatini EM
  - Seychelles EM
  - Ethiopia LIC
  - Sierra Leone LIC
  - Gabon EM
  - South Africa EM
  - Gambia, The LIC
  - Tanzania LIC
  - Ghana LIC
  - Togo LIC
  - Guinea LIC
  - Uganda LIC
  - Guinea-Bissau LIC
  - Zambia LIC
  - Kenya LIC
  - Zimbabwe LIC
  - Lesotho LIC

### Governance, external sector, and business regulation indicators (data and construction)
- Governance index:
  - Computed as the simple average of six Worldwide Governance Indicators components: Voice and accountability; Political stability and absence of violence/terrorism; Government effectiveness; Regulatory quality; Rule of law; Control of corruption.
  - Source: Worldwide Governance Indicators database (1996–2022).
- External sector index:
  - Simple average of four sub-indicators: (1) tariffs; (2) nontariff trade barriers; (3) black-market exchange rate; (4) control of the movement of capital and people.
  - Excludes indicators from the discontinued World Bank Doing Business Database.
- Business regulation index:
  - Simple average of three components: (1) bureaucracy costs; (2) administrative requirements; (3) impartial public administration.
  - Excludes indicators from the discontinued World Bank Doing Business Database.
- Other structural indicators sourced from the Fraser Institute’s Economic Freedom of the World Database; aggregate indicators normalized over a sample of 161 economies, ranging between 0 and 1.

### Climate policy counts (data construction and caveats)
- Source: Climate Policy Database.
- Includes policies with an explicit climate change mitigation objective (laws, strategic documents, targets, or other policy documents leading to lasting reductions in emissions intensity).
- Advantages: comprehensive coverage across instruments and sectors; useful where sectoral policies substitute for economy-wide carbon pricing.
- Drawbacks:
  - Does not capture the intensity of each policy (an economy-wide carbon price and a sectoral regulation receive equal weight).
  - Raw policy count does not account for enforcement.

### Empirical framework and methods
- Estimation approach: Local projection (LP) method (Jordà 2005) on a panel of 39 sub-Saharan African economies over 2000–21.
- Baseline panel LP specification (Equation (1)):
  - y_{i,t+k} − y_{i,t−1} = α_i + γ_t + β^k SR_{i,t} + θ X'_{i,t} + ε_{i,t}
  - y_{i,t} is the log of the variable of interest (e.g., climate finance through grants and concessional debt).
  - α_i and γ_t denote country and year fixed effects.
  - β^k captures cumulative impact after a given structural reform SR_{i,t}.
  - X_{i,t} includes lags of the dependent variable, past economic growth, and past reforms.
  - Two lags of the dependent variable and the shock series are included.
  - k = 0,1,2,...4. Estimation by ordinary least squares with Driscoll and Kraay (1998) robust standard errors.
- Modified specification for electricity generation (Equation (2)):
  - Includes country-specific linear trends γ_i t in addition to country fixed effects to account for heterogeneous high growth trends in renewable power generation.
- Private sector FDIs:
  - Data: announced green-field FDIs from fDi Markets covering 115 EMDEs, 2003–2021, categorized as “green” or “non-green.”
  - Estimator: pseudo-Poisson maximum likelihood for count-like/zero-inflated FDI announcements.
  - Specification (Equation (3)):
    - Y^h_{i,t} = exp{α_i + γ_t + β log(CP_{i,t−1}) + θ X_{i,t−1}} + ε_{i,t}
    - h ∈ {total, non-green, green, renewable energy, wind and solar}
    - Y^h_{i,t} is the real dollar value of greenfield FDI inflows of type h in country i in year t.
    - log(CP_{i,t−1}) is the natural logarithm of the stock of climate policies in year t−1.
    - X_{i,t−1} includes trade over GDP, log of capital stock per employee, log of GDP per capita and GDP growth.

### Key empirical findings (robustness checks excluding South Africa)
- Climate finance:
  - Sample average climate financing received through concessional grants and debt: roughly $150 million per year ($ in 2021).
  - A major first-generation reform (two standard deviations, historical) is associated with a 17.5 percent increase in climate finance, or equivalent to a $130 million increase over five years, on average, compared to a no-reform scenario.
- Total electricity generation:
  - Sample average electricity generation: roughly 9,567 GWh per year.
  - A major first-generation reform is associated with a 7.6 percent increase in total electricity generation, or equivalent to an additional 3,635 GWh over five years, on average, compared to a no-reform scenario.
- Renewable electricity generation (solar and wind):
  - Sample average renewable electricity generation: roughly 132 GWh per year.
  - A major first-generation reform is associated with a 32 percent increase in renewable electricity generation, or equivalent to an additional 170 GWh over four years, on average, compared to a no-reform scenario.
  - Significant climate action (policy stock) can boost renewable electricity generation by 26 percent, or equivalent to 137 GWh over four years, on average, compared to a no-reform scenario.
- Notes on figures:
  - t = 0 is the year of the shock.
  - Lines denote the response to a major historical reform (two standard deviations).
  - Shaded areas denote 90 percent confidence bands.
  - Robustness checks confirm main-text findings when excluding South Africa (sample of 38–39 countries depending on outcome and period).

### CO2 emissions in sub-Saharan Africa (Annex 3 summary)
- Source: IEA.
- South Africa contribution:
  - South Africa contributes roughly 56 percent of CO2 emissions of the sub-Saharan African region in 2021.
  - Majority of South Africa’s emissions come from main activities related to the production of electricity and heat (MainProd).
- Rest of region:
  - CO2 emissions outside South Africa are more concentrated in the transport sector (roughly 50 percent).
  - Total CO2 emissions in the rest of the region have increased threefold since 2000.

*Source: IMF staff calculations (clnea2024005).*

### References

### clnea2024005 - References

### Major thematic clusters in the references
- Global data, scenarios, and modeling platforms
  - “The Global Trade Analysis Project (GTAP) Data Base: Version 11.” Aguiar, Angel, Maksym Chepeliev, Erwin Corong, and Dominique van der Mensbrugghe. 2023.
  - “GTAP-Power Data Base: Version 11.” Chepeliev, Maksym. 2023.
  - “AR6 Scenarios Database Hosted by IIASA.” Edward Byers et al. 2022.
  - “The Shared Socioeconomic Pathways and Their Energy, Land Use, and Greenhouse Gas Emissions Implications: An Overview.” Riahi, Keywan et al. 2017.
  - “IMF-ENV: A General Equilibrium Model for Understanding the Macroeconomic Effects of Climate Mitigation.” Chateau, Jean, Hugo Rojas-Romagosa, Sneha Thube, and Dominique van der Mensbrugghe. forthcoming.

- Renewable energy potentials, costs, and integration (global and African focus)
  - “The Underestimated Potential of Solar Energy to Mitigate Climate Change.” Creutzig, Felix et al. 2017.
  - “Impact of Declining Renewable Energy Costs on Electrification in Low-Emission Scenarios.” Luderer, Gunnar et al. 2022.
  - “Renewable Power Generation Costs in 2022.” IRENA. 2023.
  - “Renewable Energy Market Analysis: Africa and Its Regions.” IRENA and AfDB. 2022.
  - “A Cost Optimal Resolution for Sub-Saharan Africa Powered by 100% Renewables in 2030.” Barasa, Maulidi et al. 2018.
  - “Radical Transformation Pathway towards Sustainable Electricity via Evolutionary Steps.” Bogdanov, Dmitrii et al. 2019.
  - “Re-Examining the Role of Nuclear Fusion in a Renewables-Based Energy Mix.” Nicholas, T.E.G. et al. 2021.
  - “Nuclear Energy - The Solution to Climate Change?” Muellner, Nikolaus et al. 2021.
  - “Investing into Third Generation Nuclear Power Plants - Review of Recent Trends and Analysis of Future Investments Using Monte Carlo Simulation.” Wealer, B. et al. 2021.

- Electricity access, off-grid solutions, and sector reforms in Sub-Saharan Africa
  - “A Review of Renewable Off-Grid Mini-Grids in Sub-Saharan Africa.” Babayomi, Oluleke O. et al. 2023.
  - “Assessing the Opportunities and Challenges Facing the Development of Off-Grid Solar Systems in Eastern Africa: The Cases of Kenya, Ethiopia, and Rwanda.” Mugisha, Joshua et al. 2021.
  - “The Evolution of Electricity Sectors in Africa: Ongoing Obstacles and Emerging Opportunities to Reach Universal Targets.” Foster, Vivien, Anton Eberhard, and Gabrielle Dyson. 2021.
  - “The Costs of Providing Access to Electricity in Selected Countries in Sub-Saharan Africa and Policy Implications.” Valickova, Petra, and Nicholas Elms. 2021.
  - “Linking Up: Public-Private Partnerships in Power Transmission in Africa.” World Bank. 2017.
  - “Private Power Investments in Sub-Saharan Africa.” Kruger, Wikus, and Olakunle Alao. 2023.
  - “The Impact of Competition, Trust and Capital on Renewable Energy Auction Outcomes in Sub-Saharan Africa: Analysing Auctions in South Africa, Zambia and Namibia.” Kruger, Wikus, and Anton Eberhard. 2023.

- Hydropower, dams, and environmental constraints
  - “Potential Hydropower Contribution to Mitigate Climate Risk and Build Resilience in Africa.” Cáceres, Ana Lucía et al. 2022.
  - “Linking Solar and Wind Power in Eastern Africa with Operation of the Grand Ethiopian Renaissance Dam.” Sterl, Sebastian et al. 2021.
  - “A Global-Scale Framework for Hydropower Development Incorporating Strict Environmental Constraints.” Xu, Rongrong et al. 2023.

- Climate finance, concessional finance, and accounting challenges
  - “Climate Finance for Africa Requires Overcoming Bottlenecks in Domestic Capacity.” Arezki, Rabah. 2021.
  - “Closing the Gap: Concessional Climate Finance and Sub-Saharan Africa.” IMF. 2023a.
  - “Climate Finance Provided and Mobilised by Developed Countries in 2016-2020: Insights from Disaggregated Analysis.” OECD. 2022.
  - “Climate Finance Provided and Mobilised by Developed Countries in 2013-2022.” OECD. 2024.
  - “The International Climate Finance Accounting Muddle: Is There Hope on the Horizon?” Weikmans, Romain, and J. Timmons Roberts. 2019.
  - “Has the $100 Billion Climate Goal Been Reached? | Center For Global Development.” Mitchell, Ian, and Edward Wickstead. 2024.
  - “The Long Squeeze: Funding Development in an Age of Austerity.” IMF. 2023b.

- Labor markets, productivity, and jobs related to electrification and energy transition
  - “The nexus between access to electricity and labour productivity in developing countries.” Alam, Md Samsul et al.
  - “Electricity and firm productivity: A general-equilibrium approach.” Fried, Stephie, and David Lagakos. 2023.
  - “Jobs! Electricity Shortages and Unemployment in Africa.” Mensah, Justice Tei. 2024.
  - “Potential Labor Market Impacts of the Clean Energy Transition - A CGE Analysis for Nine Countries in Sub-Saharan Africa.” Rojas Romagosa, Hugo Alexander et al. 2024.
  - “Green Jobs and the Future of Work for Women and Men.” Alexander, Naomi-Rose et al. Forthcoming.

- Policy instruments, fiscal and macroeconomic methods, and econometrics
  - “Fiscal Multipliers in Recession and Expansion.” Auerbach, Alan J., and Yuriy Gorodnichenko. 2012.
  - “Output Spillovers from Fiscal Policy.” Auerbach, Alan J., and Yuriy Gorodnichenko. 2013.
  - “Estimation and Inference of Impulse Responses by Local Projections.” Jordà, Òscar. 2005.
  - “Local Projection Inference Is Simpler and More Robust Than You Think.” Montiel Olea, José Luis, and Mikkel Plagborg-Møller. 2021.
  - “Local Projections and VARs Estimate the Same Impulse Responses.” Plagborg-Møller, Mikkel, and Christian K. Wolf. 2021.
  - “Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data.” Driscoll, John C., and Aart C. Kraay. 1998.
  - “The Log of Gravity.” Santos Silva, João M.C., and Silvana Tenreyro. 2006.

- Geoeconomic fragmentation, trade, and energy transition design
  - “How Vulnerable Is Sub-Saharan Africa to Geoeconomic Fragmentation?” Bolhuis, Marijn et al. 2024.
  - “Energy Transition and Geoeconomic Fragmentation: Implications for Climate Scenario Design.” Gardes-Landolfini, Charlotte et al. 2023.
  - “Energy Transition and Geoeconomic Fragmentation” cross-referenced analyses and scenario design implications.

- Green innovation, FDI, and structural reforms
  - “Green Innovation and Diffusion: Policies to Accelerate Them and Expected Impact on Macroeconomic and Firm-Level Performance.” Hasna, Zeina et al. 2023.
  - “Climate Policies as a Catalyst for Green FDI.” Pienknagura, Samuel. 2024.
  - “Policies to Foster Green FDI: Best Practices for Emerging Market and Developing Economies.” Jaumotte, Florence et al. forthcoming.
  - “Structural Reforms to Accelerate Growth, Ease Policy Trade-Offs, and Support the Green Transition in Emerging Market and Developing Economies.” Budina, Nina et al. 2023.

### Representative country-, region-, and sector-focused works cited
- Regional and country analyses
  - “Africa Energy Outlook 2022.” IEA. 2022.
  - “Digging for Opportunity: Harnessing Sub-Saharan Africa’s Wealth in Critical Minerals.” IMF. 2024.
  - “Regional Economic Outlook for Sub-Saharan Africa—A Tepid and Pricey Recovery.” IMF. April 2024 (within cited item).
  - “Namibia: 2023 Article IV Consultation-Press Release; and Staff Report.” IMF. 2023c.

- Sector- and technology-specific studies
  - “Geothermal Renewable Energy Prospects of the African Continent Using GIS.” Elbarbary, Samah et al. 2022.
  - “A Cost Comparison of Technology Approaches for Improving Access to Electricity Services.” Nerini, Francesco Fuso et al. 2016.
  - “Sustainable Pathways towards Universal Renewable Electricity Access in Africa.” Peters, Rebecca et al. 2024.
  - “State of Biofuel Development in Sub-Saharan Africa: How Far Sustainable?” Jha, Priyanka, and Stefan Schmidt. 2021.

### Key methodological and data references used across the note
- Economic modeling, CGE, and general-equilibrium methods
  - GTAP databases and GTAP-Power (Version 11).
  - IMF-ENV general equilibrium modeling (forthcoming).
  - CGE analyses for labor market impacts (World Bank, 2024).

- Empirical methods and inference
  - Local projections and impulse-response estimation (Jordà 2005; Montiel Olea and Plagborg-Møller 2021; Plagborg-Møller and Wolf 2021).
  - Spatially dependent panel covariance estimation (Driscoll and Kraay 1998).

*References for "Harnessing Renewables in Sub-Saharan Africa: Barriers, Reforms, and Economic Prospects" — IMF STAFF CLIMATE NOTES 2024/005*

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_Source: https://www.imf.org/-/media/files/publications/staff-climate-notes/2024/english/clnea2024005.pdf_